Wednesday, January 23, 2019

The Government, the housing market and the wider economy will have to navigate this year around a land mine put in their path by the Reserve Bank. This potential explosion inside the housing market may be avoided or deflected, but if the big four banks want to hold the Government hostage they could go on a lending strike and ramp up mortgage rates in a way that slams house prices and the wider economy.

It's all about an arcane part of financial regulation that most voters and home owners will never have heard of, let alone politicians and business leaders: capital requirements.

The biggest story in the political economy at the end of last year that didn't get a lot of attention was the Reserve Bank's proposals in mid-December for New Zealand's banks to double their tier one capital levels over the next five years.

That would force the big four banks to put aside almost $20 billion in fresh capital, which would be the equivalent of retaining 70 percent of their profits each year for the next five years.

Those Aussie banks make mega-profits, which they suck back over the Tasman to their foreign owners. As pointed out, they could easily afford to comply with the government's requirements (which are about ensuring that banks can withstand economic shocks, like, say, a mad orange blob in the White House starting a trade war with China). But that would mean lower profits, so they are apparently threatening sabotage instead.

...to which, the government should say "bring it on". Because this sort of shit is exactly why we have KiwiBank. If this hostile foreign cartel decides to start a capital strike, then the government can and should shovel billions of dollars at KiwiBank so it can simply step in and take all their business. And then we'll find out whether they're actually serious about refusing to make money in New Zealand, or whether its just the usual huff and puff from rich wankers used to getting their own way from chickenshit politicians.